Noam Chomsky on

The Free Market

by Adrian  Lai,
April, 2002


Links X X X X X X


Few people have made an impact on the world like renowned linguist, Noam Chomsky. Chomsky revolutionized the field of linguistics with his cognitive theory that language was an innate faculty genetically defined in the human brain. The M.I.T professor holds the title of being the most cited living person, and is sometimes said to be to linguistics what Einstein was to Physics. However, linguistics aside, Chomsky’s intellectual contribution is extensive. He “has published over seventy books and over a thousand articles in the fields of linguistics, philosophy, history, politics, cognitive sciences and psychology” (Rudolph).

Chomsky, a libertarian socialist, has attained cult-figure status in the political arena with his outspoken political activism, and biting criticism of the U.S. capitalist machine. His basic argument is that true capitalism does not exist in reality. According to him, capitalism in the United States is a façade intentionally created by the power structure in order to subjugate the masses, in the interest of the rich and powerful. He applies this view to issues such as U.S. foreign policy, traditional politics, and the role of media to reveal that hidden under layers of propaganda and political rhetoric are intentions that benefit the rich by manipulating the poor, working class.


In a 1994 article entitled How free is the Free Market, Chomsky states, “the free market is 'socialism' for the rich: the public pays the costs and the rich get the benefit --markets for the poor and plenty of state protection for the rich.” His meaning is that the market claims to be free in order to gain the trust and tax funds of the working class, but in actuality, control of the market is enormously swayed in favor of the rich and privileged. Power is concentrated into unaccountable institutions that are highly subsidized and protected by the government in the interest of the rich elite.

Chomsky begins by demonstrating his theory through a human rights perspective. Human rights are frequently an issue brought up by the U.S. when legitimizing its reasons for foreign intervention in backwards, third world countries. The1948 UN Universal Declaration of Human Rights which states the universal right of everyone to a standard of living adequate for himself and his family, if often used as a leverage to support U.S. foreign opinion. However, Chomsky questions, “How are these principles upheld in the richest country in the world, with absolutely unparalleled advantages and no excuses for not completely satisfying them?” He states that in New York City, 40% of children live below the poverty line. In fact, according to Chomsky, the U.S. has the worst poverty record in the industrialized world--twice as high as England’s.


Trade in the U.S. is another excellent example for the argument against the supposedly free market. Chomsky questions the true efficiency of trade. He argues that in practice, trade is “highly subsidized with huge market-distorting factors” that are not accounted for. Chomsky provides transportation as an example of a market-distorting factor. He writes, “Since trade naturally requires transport, the costs of transport enter into the calculation of the efficiency of trade.” He explains that since all forms of transportation are highly subsidized through energy-cost manipulation or other methods, the true costs of transport are greatly reduced.

Additionally, Chomsky describes how trade is indirectly subsidized. A substantial part of the Pentagon is directed towards maintaining intervention forces in the Middle East. Chomsky argues that the reason behind U.S. interest is primarily “to keep oil prices within a certain range.” U.S. and British Oil companies do not want oil prices to drop too low, because that would mean a loss of profit. At the same time, oil prices that are too high would mean an inefficiency of trade. The result is that the profit motive of these corporations has a negative effect on the efficiency of trade. Chomsky’s broad argument is that the power structure of rich corporations has such a large influence on government and the economy that there is no real market freedom. The consumer, being unaware, continues to suffer at the hands of corporations.


Further proof of how much corporations gain from U.S. economic policy comes from the acknowledgement that a huge percentage of trade accounted for in GDP as foreign exports isn’t even real trade. More than half of Mexican exports never even enter the Mexican market and it is estimated that about 40% of world trade is internal to corporations. Although classified as exports, a lot of trade consists of internal transactions within corporations from one plant to another across national borders. The true reasons for this type of “trade” are cheaper labor costs, and less pressure on corporations to curb pollution. Chomsky describes the system as a corporate mercantilism, “centrally-managed transactions run by a very visible hand with major market distortions of all kinds.”

Chomsky uses the example of trade and its inefficiencies to point out that “efficiency is largely an ideological construction.” In other words, U.S. policies don’t really depend on economic efficiency; what matters are the power relations. Chomsky says, “there have been a number of academic and management-affirmed studies which have shown over and over that automation is introduced by managers, even when it increases costs - when it's inefficient - just for power reasons.” To strengthen his position, Chomsky provides examples. In the 1950s, before they were marketable, computers were almost 100% taxpayer supported. In the 1980’s, the state supported around 85% of all electronics. And biotechnology and pharmaceuticals “were all initiated and maintained by enormous state subsidies and intervention - otherwise they would not exist” (Chomsky). But when these innovations became market-worthy, production was handed over to private corporations to milk the profits. Chomsky exclaims, “It’s called free enterprise!”


Chomsky also analyzes U.S. capitalism from a global perspective. When The North American Free Trade Agreement (NAFTA) was implemented in 1984, it pushed for acceleration from a national economy to a global economy. Chomsky claims that its effect meant greater mobility of capital, leading to greater immobility of labor. NAFTA made it easier for American corporations to switch their labor force to less developed countries, with cheaper labor costs, and less environmental regulation. Chomsky agrees that the effects of NAFTA were lowered wage rates of unskilled workers in the U.S. He states that unskilled workers make up 70% to 75% of the work force. The workers lose because of trade agreements such as NAFTA, which are agreed on and implemented by corporations for their own benefit.

The issue has global connotations. He claims that the influence of transnational enterprises on parliamentary institutions is growing larger. The end of the Cold War saw the movement of U.S. corporations into Eastern Europe. “When General Motors set up a plant in Poland they insisted upon high tariff protection; similarly, when Volkswagen sets up a plant in the Czech Republic it insists on tariff protection and also externalization of costs.” The people of these countries cover the costs, while the American corporations hoard all the profits. In Poland for example, because of capitalist reforms, the people who are fairly educated, will work for 10% of the U.S. wage rate with no benefits. In Chomsky’s words, “markets for the poor and plenty of state protection for the rich.”


Trade compromises such as NAFTA and The General Agreement on Tariffs and Trade (GATT) only assist in perpetuating the disparity. Chomsky describes them as complicated mixtures of “liberalization and protectionism carefully crafted in the interest of the transnational corporations”. An example of this is GATT’s guarantee of intellectual property rights. Chomsky claims that it prevents technical innovation and reduces economic efficiency. He argues that the protection of intellectual property is only in place to guarantee “that the technology of the future is monopolized by huge and generally government-subsidized private corporations.” GATT’s inclusion of product patents prevents someone who designs a better technique to produce a drug to implement that technique. This has great effects on poorer countries such as India, where traditionally, big corporations where able to produce essential drugs at much cheaper costs. Product patents ensure that India’s pharmaceutical sector will no longer be able to design more efficient methods of producing drugs.

And even high-ranking government officials have admitted that the market is less free than purportedly claimed. When GNP reached record heights in the first years of the Reagan administration, they boasted to the public that it was because of the free market. However, to the business community, they provided a different explanation. James Baker, Secretary of the Treasury, announced at a business convention “that the Reagan administration offered more protection to U.S. manufacturers than any of the preceding post-war administrations” (Chomsky). But he wasn’t entirely truthful. According to Chomsky, the administration offered more protection than all other administrations combined.


Chomsky cites the aeronautical industry as an example of just how much big businesses are subsidized by State funds. Fortune magazine explains how the industry could never survive in the market without public support. Companies such as Boeing are almost completely subsidized. The industry is largely supported and subsidized by NASA and the Pentagon. In practice, corporations run the free market. “The profits are privatized and that's what counts,” claims Chomsky.

While well known for his fiery criticism of the free market and capitalism, Chomsky avoids imposing a replacement for the system he so publicly denounces because he acknowledges the complexities of understanding social behavior. According to a Z magazine article entitled Noam Chomsky on Anarchism, “he cautions that it is difficult to predict what particular forms a more just social organization will take, or even to know for sure what alternatives to the current system are ideal” (Lane)

However, Chomsky maintains a vague idea of an ideal alternative. He actively supports the libertarian socialist cause. The website,, defines libertarian socialism as “an anti-authoritarian form of socialism and the main principles are liberty, freedom, the right for workers to fraternize and organize democratically, the absence of illegitimate authority and the resistance against force.” Libertarian Socialism is a kind of anarchism, which believes in a system “without state or capitalist masters” ( The exception is that libertarian socialism emphasizes individual liberty; without State regulation and limitations, working class individuals will be able to organize together through information and education in order to make the best judgments for themselves.


In Noam Chomsky on Anarchism, Chomsky provides a brief explanation of his beliefs. He agrees that anarchism is formless and utopian and realizes that the ideology holds no true definition. He attributes this to the complexity of human society, saying, “We only have intuitions of limited validity as to the ways they should be reshaped and constructed” (Lane). But he does admit that the anarchist essence is to challenge society’s current institutions in justifying their functions. If they cannot, then they are illegitimate and should be dismantled. Chomsky stresses education. People who accept the current economic system are only accepting a misrepresentation of the truth. But through education of the system’s underlying threads, a person will realize what is really going on, and be able to reject it for another system that is more suitable. In Chomsky’s view, capitalism and parliamentary democracy as we know it today are frauds and misrepresentations that only seek to prevent the general population from being truly knowledgeable. As for the anarchist solution, Chomsky is unsure but seems confident. His advice is, “The answers are unknown. We would have to learn by trial. Let's try it and find out” (Lane).




Works Cited

Chomsky, Noam. “How Free is The Free Market?” Resurgence: Issue 173. May.1994. 9 Apr. 2002 <> Socialism. 1 Sep. 2001. 19 Apr.2002 <> Lane, Tom. “Noam Chomsky on Anarchism.” Z magazine 23 Dec. 1996. 19 Apr. 2002 <> Rudolph, Julie. 19 Apr. 2002. Class Bios of Noam Chomsky. Spring 1999 Home Page for J363: Mass Comm Theory. 19 Apr. 2002 <>






OK Economics was designed and it is maintained by Oldrich Kyn.
To send me a message, please use one of the following addresses: ---

This website contains the following sections:

General  Economics:

Economic Systems:

Money and Banking:

Past students:

Czech Republic

Kyn’s Publications

 American education

free hit counters
Nutrisystem Diet Coupons